5. Domestic Political Environment MMD - Feb 2014

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GBE:

Domestic Politics

Mohtar Mas’oed

Magister ManajemenUniversitas Gadjah Mada

GENERAL BUSINESS

ENVIRONMENT

Why should we bother?



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The qualifying concept of

ceteris paribus means

that you do not need

to consider other variables



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As business decision-making

is affected by many different

kinds of “things” or events,

decision-makers have to consider

many dimensions of human life,physical as well as social



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WE NEED TO UNDERSTAND

DOMESTIC

POLITICAL

ENVIRONMENT



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CHALLENGES TO BUSINESS

CRIMINAL ATTACKS POLITICAL

INSTABILITY

LEGAL

CHALLENGES

ECONOMIC

VOLATILITY

R I S K O F L O S S O F L I F E

RISK OF FINANCIAL LOSS

Democratic

Politicsin Indonesia:Performance and Pitfalls



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The Synopsis

• Indonesia, a country divided by many dimensions of

social life (ethnicity, religion, region, language, etc.)

managed, in 1945, to create a unified nation-state with

a common language and later, in 1999, to establish a

workable democracy via elite negotiation.

• As democratization via elite compromise prioritizes

formal institutions, it required no structural change.

• Hence, patrimonialism and clientelism persist and

impeded the development of citizenship rights.

The Puzzles

• Lacking in many elements of “democraticsocial prerequisites,” Indonesia managed to(re-)establish democracy in 1999.

• Having been criticized by the people as “non-performing” (at least, not as expected bymany) and suffered a low-degree ofconfidence, democratic regime in Indonesiamanaged to prevail. No real challenge toreverse it back toward authoritarianism.



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Transition to Democracy

• It started when Pres. Suharto in May 21, 1998 suddenlyresigned amidst a great political turmoil in the wake ofgreat economic crisis.

• The successor, Pres. B.J. Habibie initiated liberalization

measures: freeing the press, releasing politicalprisoners, relaxation of restriction on dissent, and themost important step toward democratization, i.e.conducting parliamentary elections in 1999.

• The transition culminated in the election ofAbdurrahman Wahid , a non-sectarian Muslim-scholarand a leader of democratic movement, to become thefirst President elected democratically.



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Elitist Transition

• The political opening started by Pres. Habibie

encouraged a variety of political actors to appear

and take part in the dynamic interactions

between the forces supporting the New Order

regime and those opposing it.

• Emerged a new political constellation:

– “pro-status-quo”: mostly within governmentestablishment; versus

– “reformist” groups: mostly extra-government

Pro-Status-Quo: Two Factions

• The first, the “hard-liners”: rejected political

reform as it would destroy their position of

wealth and power.• The second, the “soft-liners”: ready to join the

reform movement with the condition that it

would not destroy the general political

framework that they considered still workable.



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Pro-Change: Two+ Strands

• The "radicals“: demanded "revolutionary change, now.”Consisted of mostly loosely-organized groups whosedynamics mostly came from student leaders.

• The "moderate“: wanted political reform withoutunnecessarily destroying the whole system. Enjoyed muchbroader supports from the diverse groups in theopposition, especially from the leaders of the biggestMuslim as well as nationalist organizations.

• The "opportunists", those who kept a "wait-and-see"position. When it all started, most political elitesbelonged to this category. Including those who hastilycreated political parties to join the June 1999 elections.

Gradualism, Moderation & Compromise

• During the transition period (May 1998-Oct 1999): adynamic process resulted in the condition enabling thedialectic discourse between the "soft-liners" within thegovernment and the "moderates" among the opposition.

• Considering the fact that the New Order did not simplycollapse, the pro-status-quo elements within the militaryestablishment could still reverse Habibie’s liberalizationand democratization projects, and the opposition wasdivided and not strong enough to topple the government,while the government could not crack down on theopposition without worsening the mass upheaval, theonly reasonable option was compromise.



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Gradualism, Moderation & Compromise (2)

• The critical role of the "middle-of-the-road" politiciansto achieve a rapprochement.

• Emerged from the elite bargaining was a kind of tacit"pact”. They tacitly agreed on a two-point agenda:

– First, soliciting the support of the political leaderswho had not determined their position yet,especially those in the "opportunist" camp; and

– Second, neutralizing the radical's appeal among theopposition and the reactionary's power within thegovernment.

Cohabitation

• The strategy of gradualism, moderation andcompromise exhibited by the reformist leaders duringthe parliamentary elections in June and thepresidential election in the People's Assembly in

October 1999 was the key to the successful changethat bring Indonesia back to its democratic tract.

• The strategy of elite negotiation, bargaining andcompromise resulted in a specific power-sharingarrangement. All prominent “reformist” groupsshared the political and government positions(President, Vice-President, Speakers of bothparliaments and cabinet portfolios).



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The Downside

• Such a politics of compromise and inclusion wasapplauded by many as the best way of co-opting manypro-status-quo leaders who could, or who has thepotentials to, destabilize the new government.

• The elite negotiations, however, inflicted muchdamage to the solidarity of the reform-mindedgroups. To protect their own interests and to secure afavorable place in the potential transition towarddemocracy, the “soft-liners” (in the government)marginalized the “radicals” (especially the students)by making concessions to the moderates in theopposition (especially from lesser Muslim parties).

The Downside (2)

• Left out are the leaders who organized the mass

demonstrations, especially the students and other

groups in civil society.

•Given the fact that the democratization gained its

momentum from the demonstrations and mass rallies

that were mostly organized by students and the civil

society’s leaders, the marginalization of the these

leaders only created frustration among the groups

who still keep the potential to disrupt the political

system.



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The Downside (3)

•• The compromise enabled the proThe compromise enabled the pro--statusstatus--quo group toquo group to

keep their favorable position in the ruling elites. Therekeep their favorable position in the ruling elites. There

is no real break with the New Order.is no real break with the New Order.

•• The consequenceThe consequence: G: Governmentovernments of posts of post--authoritarianauthoritarian

Indonesia have been unable toIndonesia have been unable to implement some ofimplement some of

the most important reforms it promised. The mostthe most important reforms it promised. The most

embarrassing of all is the failembarrassing of all is the failureure to hold the formerto hold the former

President Suharto and the military accountable forPresident Suharto and the military accountable for

their wrongdoings in the past.their wrongdoings in the past. CCriticsritics worried aboutworried about

the possibility that the criminal offenders wthe possibility that the criminal offenders wouldould getget

impunity.impunity.

The Downside (4)

• The strategy of compromise and inclusion has the

effect of delaying the inevitable political restructuring,

with all the associated turmoil that keep dragging on.

•The elitist strategy also put so much formidable

constraints on the new government as to make it

impotence.

• This is the major reason of its inability to deal

determinedly with Suharto and his cronies concerning

the issues of corruption as well as human rights

violations



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Formal Democracy Measures

1. Inclusive citizenship.

2. Rule of law.

3. Separation of powers.

4. Elected power-holders.

5. Free and fair elections.

6. Freedom of expression and alternative sources

of information.

7. Associational autonomy.

8. Civilian control over the security forces.

Source: Kaldor and Veivoda (1997:63).



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Consolidated Democracy Measures

1. The institutionalization of democraticpractices: regularly-held elections a + a well-balanced governing body.

2. The survivability of the democratic regime inthe face of continuing economic and politicalchallenge.

3. The inculcation of democratic values whichlead citizens and parties to believe thatdemocracy is the “only game in town.”

Source: Gunther, et.al. ; O’Donnell, 2005; Linz & Stepan, 2001.

“Electoral Fallacy”

• “The danger of placing too much weight on free and

fair elections while undervaluing other aspects of

democracy.”

•The other aspects being:

Political tolerance

Human rights

Civil society

Universal enfranchisement

Civil liberties

Source: Smith (2002:640).



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Democracy minus Equality

• Indonesian democracy is remarkable on those scores.

It is “surprisingly liberal and increasingly widely

accepted as ‘the only game in town’.” However, “it

suffers from defunct instruments that are unable to

facilitate political equality and popular control of

public affairs” (Tornquist, 2006).

• Why? The deficit is due to:

– Monopolization of instruments by the establishment;

– Poor presentation of people’s interests and visions; and

– Political marginalization of democractic agents of change.Source: Tornquist (2006).



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Elections & Political Fragmentation

• Elections in Indonesia have been unable to

facilitate the establishment of strong and solid

foundation for effective government.

• The biggest winner in the Elections of 1955, got

only 22% of the votes; up to 34% in 1999, but

down to 21% in 2004 and stay at 20.8% in 2009.

• For party politics in Indonesia, fragmentation

and inability to create a winning coalition seem

to be the “norm”.

1955 % 1999 %

PNI (Nationalist) 22 PDI-P (Nationalist) 34

Masyumi (Modernist Muslim) 21 Golkar (Nationalist) 22

NU (Traditional Muslim) 19 PKB (Traditional Muslim) 12

PKI (Communist) 17 PPP (Mixed Muslim) 10

PAN (Modernist Muslim) 7

PBB (Modernist Muslim) 2

PK (Modernist Muslim) 1

Other parties 21 Other parties 12

Total 100 Total 100

Stubbornly Fragmented?:The Results of Elections of 1955 & 1999



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Stubbornly Fragmented? (2):Elections of 1999, 2004 and 2009 (percentage)

Political Party 1999 2004 2009

PDI-P (Nationalist) 34 18 14.03

Golkar (Nationalist) 22 21 14.45

PKB (Traditional Muslim) 12 10 4.94

PPP (Mixed Muslim) 10 8 5.32

PAN (Modernist Muslim) 7 6 6.01

PBB (Modernist Muslim) 2 2 ---

Demokrat(Nationalist) ---- 7 20.85

PK/PKS (Modernist Muslim) 1 7 7.88

GERINDRA (Nationalist) - - 4.46

HANURA (Nationalist) - - 3.77

Other parties 12 21 18.29

Some Performance

• Indonesian democracy has been more than 10

years of continued, including the alterarion of

parties in power. In one sense, it is already

consolidated democracy.

• As consolidation of democracy requires the

routinization of and a normative commitment to

democracy (Diamond, 1999), however,

Indonesians need to work harder to put more

“substance” to the democratic “framework”.



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Direct Elections of Regional Heads:June 2005 – May 2006

• 232 direct elections of regional heads (9

governors, 33 mayors, 190 district heads)

• Heavily contested: 153 elections were contested

by 4 to 7 candidates; only 28 regions saw a two-

lane races.

Source: USAID-DRSP, “Stocktaking on Indonesia’s Recent Decentralization Reform”, Jakarta: August 2006



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Direct Elections of Regional Heads (2)

• The candidacy is decided in multi-level process.

– First, at the local level, either through a kind of test(to assure his/her capability and integrity), or partyconvention (to assure his/her acceptability amongthe party members).

– Then, the upper-level, up to the central, leadershipshave the final say.

• The law 32/2004 gives political parties a strategic

role in the direct elections. Candidates are requiredto get the support of a political party or a group ofparties (which controls 15% of the DPRD seats orwon 15% of the electoral votes).


• As individuals wanting to be candidates have tocourt political parties and as the parties are alwayshaunted by financial problems, the party politiciansuse it to raise funds by selling the candidacy to the

highest bidder (“money politics”).• A candidate wishing to run in a district or city must

contribute not only to the party, or parties, at thatlevel but also to the party or parties at provincialand even at the national level.

• Hence, the process is very elitist. Only thepropertied has a chance to participate.



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• This way, the Direct Elections resurrected thedisdainful practice of traditional elections ofvillage head, especially in Java: i.e., bandarsyndrome.

• Bandar is basically gambler who not only bet forthe victory of his favorite candidate (as if it is agambling), but also do whatever it takes, by using

his financial power, to make his candidate windecisively.

Source: Nur (2007)


• The Direct Elections proved to be very costly. The

cost to become a district head in East Java starts

from Rp.5 billions and up to five times as much.

This covers many activities: cash payments to

political parties and their leaders, campaign,

rallies and public relations, T-shirts and uniform

outfits for the young supporters and many other

related expenses.

Source: Nur (2007)



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• For those who are unable to pay, there are

bandars who are ready to give a hand. The

latter’s functions are to make sure that his

candidate win. This includes:

– Financing the costs.

– Arranging the candidacy

– Manipulating the electoral process

– Public relations campaign

Source: Nur (2007)



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Territorial Reform

• The creation, division, amalgamation and dissolution

of regions.

• Objective: To increase the welfare of citizens, through:

– Better service

– Enhanced democratic life

– Faster economic growth

– Increased security and order

– Harmonious relations between regions

(Government Regulation No.129/2000, art.2)

Source: USAID-DRSP (2006)

In Practice:

Creating More Regional Governments

• The formation of new regions by splitting theexisting regions.

• It proceeded in a very rapid manner (100 more

proposals awaiting)• Problem created: Population size of the regions

varies widely

– Province: Gorontalo (less than 800,000 pop.); EastJava (more than 35 millions pop.)

– District/City: Supiori (11,800 pop.); Bandung District(4.1 millions pop.)



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Creating New Regions in Indonesia,

1950-2005


Population size of District/City Varies Widely




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Table 2: Growth of New Regions by

Major Island/Regional Grouping to 2004


Why Creating New Local Governments?

• To bring government closer to the people andspur modernization of region?

• Preference for homogeneity and favoring putra

daerah (sons of the soil)?• Response to fiscal incentives inherent in

financial transfer?

• Bureaucratic rent-seeking?

• A desire of some elites to strengthen theirpolitical turf?



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The Negative Consequences

• Inefficient administration as per capita costsof government increase sharply.

• Decreased capacity to adequately carry outthe functions assigned uniformly to alldistricts/cities.

• Increased parochialism and potential for inter-

group (ethnic, religious) conflict• Manipulated by local traditional bosses to

revive “feudalism”.


The Lessons Learned from the Regions

• Formal institutionalization has not addressedthe structural prerequisites for healthydecentralization, esp. fiscal and monetary

decentralization.• The party leaders tend to develop a pragmatic,

short-sighted and self-interested politicalbehavior. Patrimonialism, clientelism persist.

• As citizenship rights are not part of the“territorial reform” scheme, substantivedemocracy at the local level is hard to expect.



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Citizen Non-Confidence?

Source: Asia Barometer 2007 Survey Note: T: Trust. DT: Distrust



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Source: Asia Barometer 2007 Survey

Still Puzzling?

• As people’s confidence in the authority andthe capacity of public institutions to deal withtheir problem tend to be low, what keepsIndonesian democracy enduring?

• While most people suffered from abjectpoverty, unemployment, violence & socialinequality and angry of deficient social &economic policies as well as overall publicservices, most of them do not challenge thedemocratic regime.



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Democracy based on

Undemocratic Institutions?• The place of the institutions is taken over by

other non-formalized but strongly operative

practices, such as clientelism, patrimonialism

and corruption.

• What is the prospect of Indonesian democracy

if democratic institutions exist alongside

patrimonial and clientelistic practices of theNew Order regime?

The Prospect

• While the formal democratization does notdirectly challenge patrimonialism and clientelism,so that citizenship rights does not develop;

• While it failed to deal conclusively with themilitary territorial-management (a nationwidepolitical machine), so that there will always be achance for them to organize politically;

• There is, still, a good reason to believe thatcitizen’s attitude toward democracy becomeingrained in civil society, political society,economic society and the opposition groups.



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References

Beetham, David (1994). “Conditions for Democratic Consolidation”, Review of

African Political Economy. Vol.21, No.60 (June)

Gunther, Richard, et.al. (2001).

Kaldor, Mary and Ivan Veivoda (1997). “Democratization in Central and East

European Countries”, International Affairs. Vol.73, No.1 (January).

Nur, Muhammad (2007), “ The Significant Role and Practice of Money Politics in

the Direct Eletions of Regional Head” (Unpublished dissertation, Airlangga

University, Surabaya)

Smith, Daniel A., “Consolidating Democracy? The Structural Underpinnings of

Ghana’s 2000 Elections,” Journal of Modern African Studies. Vol.40, No.4

(2002) pp.625-650.Tornquist, Olle (2006). “Assessing Democracy from Below: A Framework and

Indonesian Pilot Study”. Democratization. Vol.13. No.2 (April 2006)

USAID-DRSP(2006). Stocktaking on Indonesia’s Recent Decentralization Reform,

Jakarta: August

Documents

5. Domestic Political Environment MMD - Feb 2014